This record is a partial extract of the original cable. The full text of the original cable is not available.

241058Z Feb 06

UNCLAS SECTION 01 OF 04 PARIS 001138 
 
SIPDIS 
 
STATE FOR EUR/WE; OES; STAS; ISN; EB/ESC, AND EB/CBA 
USDOC FOR 4212/MAC/EUR/OEURA 
DOE FOR ROBERT PRICE PI-32 AND KP LAU NE-80 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EIND EINV PREL PGOV FR
SUBJECT: FRANCE: ENERGY SECTOR UPDATE 
 
Ref: Paris 169 and previous 
 
¶1.  This is another in a series of occasional updates on the 
French energy sector.  Feedback is welcome to help us make 
this product as useful as possible for our inter-agency USG 
audience. 
 
Contents: 
-- EDF's appetite for takeovers grows as profits double 
(para 2) 
-- Italians again eyeing Electrabel, this time via Suez 
(para 3) 
-- French media reacts to new focus on U.S. "addition to 
oil" (para 4) 
-- Gaz de France faces French courts (para 5) 
-- Peugeot-Citroen unveils diesel-hybrid technology (para 6) 
-- Hummer sales contradict the French stereotype of 
themselves as low energy users (para 7) 
-- Who will succeed Jean Syrota at French energy regulator? 
(para 8) 
-- PSA and Renault adopt energy efficiency ratings (para 9) 
-- Total reports strong performance (para 10) 
-- France and India hope to expand nuclear power cooperation 
(and sales) (para 11) 
-- Franco-German-Benelux talk of common electricity market 
(para 12) 
 
¶2. EDF's appetite for takeovers grows as profits double:  On 
February 23, French utility Electricite de France (EDF) said 
that its net income doubled during 2005 and that the company 
was looking for further acquisitions to increase its 
foothold across Europe.  Reaching well beyond its target of 
2.6 billion euros for 2005, net income of 1.6 billion euros 
for 2004 jumped to 3.24 billion euros for 2005, as EDF 
benefited from higher electricity prices across Europe.  In 
an interview with French business daily Les Echos, EDF's 
chief executive Pierre Gaddoneix said that the company was 
prepared to consider major European acquisitions, 
particularly in places, such as Spain and the Benelux 
countries, where EDF did not already have a foothold. 
 
¶3. Italians again eyeing Electrabel, this time via Suez:  In 
another sign that France will be a major participant in the 
energy sector consolidation movement that was most recently 
seen in Eon's controversial bid for Spain's Endesa, French 
energy group Suez is reportedly a target of a hostile 
takeover bid from Italy's Enel.  Enel is reportedly seeking 
a partner to jointly launch a bid for Suez and the company 
is believed to have contacted German energy group RWE.  A 
bid for Suez could cost up to 38 billion euros, but Enel 
only has resources of 15 billion euros, so the need for a 
partner is clear.  However, an Enel-RWE partnership would 
face the challenging task of sorting out how they would 
share the spoils of a Suez acquisition, in particular the 
Suez-controlled Belgian utility Electrabel.  Enel recently 
publicly expressed its interest in Electrabel and did not 
rule out launching a bid for Suez in order to get a hold of 
it.  Even more recently, Gaz de France and Suez are 
reportedly considering an alliance in a GOF-backed bid to 
fend off a hostile approach from Enel.  According to reports 
on February 24, a possible GDF-Suez alliance, such as a 
share swap or joint venture, could be a prelude to an 
eventual merger. 
 
Some industry observers have a sense of deja vu.  The 
history of Suez's acquisition of Electrabel more than a 
decade ago may hold lessons for Enel.  In the 90s, Italian 
business tycoon Carlo De Benedetti attempted one of Europe's 
first cross-border hostile raids, namely for Societe General 
de Belgique, which included control of Electrabel.  The 
Franco-Belgian business establishment responded with fierce 
resistance, a precursor to the economic nationalism we are 
currently seeing in western Europe.  The result was a rescue 
of Electrabel by Suez, which has since refocused from a 
French financial holding company to a European energy and 
water utility, including full ownership of Electrabel. 
 
¶4. French media reacts to new focus on U.S. "addition to 
oil": A weekly column of center-right daily Le Figaro, 
entitled "America Prepares the Post-Oil Era," commented that 
President Bush's State of the Union address could be a major 
turning point, as far as the President's stance on new 
energies. "His speech is nothing less that an open 
declaration of war against OPEC... The geo-strategic 
consequences are immense: oil monarchies will lose much of 
their income... The U.S. car industry will be a big loser, 
so will the Anglo-American oil lobby in Washington... But 
there will be three other winners in this redistribution of 
the cards: Russia is the most obvious, China is the second 
winner and finally... the third winner is simply France, 
thanks to its electro-nuclear program. And Areva is the best 
positioned company, as well as the most effective, as proven 
by the numerous contracts its has been landing in the U.S." 
An op-ed in left-leaning paper Liberation commented on 
President Bush's new energy policy by saying "At first 
glance the President's stance was saluted... But upon 
looking more closely, it is clear that his policy is nothing 
more than a conjuring act. in which the method of how to 
reach the goal was ignored." and concludes that "American 
(And European) oil companies can continue to bank on healthy 
results for the next twenty to thirty years."  Overall, the 
French seem to be skeptical, but content with the boost they 
perceive this gives to nuclear power, where France is 
clearly a world leader and French industry and scientific 
community stands to benefit greatly. 
 
¶5. Gaz de France faces French courts:  The French power 
group Gaz de France (GDF) went on trial February 20 accused 
of manslaughter.  The trial follows an explosion, due to a 
crack in a main pipe, in Dijon in 1999, which killed 11 
people.  The company is accused of failing to maintain the 
pipe in line with regulations.   In a separate case, a 
French court has annulled a ruling overturning a gross 
negligence finding against GDF, the national power group, 
which exposed one of its employees to asbestos.  In June 
2004, the Pau appeals court found that GDF had not been 
guilty of gross negligence by exposing one of its employees, 
Lucien Barbason, who was maintaining gas distribution 
points, to asbestos-contaminated areas. The recent court 
ruling said that GDF had been aware of the risks associated 
with asbestos since 1977 and that it had been aware, or 
should have been aware, of the danger to Mr. Barbason.  The 
case will be re-examined by the Toulouse appeals court. 
 
¶6. Peugeot-Citroen unveils diesel-hybrid technology:  PSA 
Peugeot-Citroen is developing new fuel-efficient technology 
utilizing diesel and electricity.  Based on automobile 
models, Peugeot 307 and Citron C4, PSA and the GOF Agency 
for Industrial Innovation will have four years to develop 
diesel hybrid vehicles ready for sale by 2010.  At the 
present time, there are only two types of fuel-efficient 
vehicles: the diesel car, and the gasoline-hybrid.  Although 
Toyota's gasoline-hybrid Prius is currently one of the 
world's least polluting models, PSA believes that utilizing 
diesel-electric technology would be far more efficient than 
Toyota's gas-electric technology.  The diesel-hybrid system 
can start and drive using the HDi diesel engine, even when 
the high-voltage battery pack is totally empty. Other gas- 
hybrid vehicles would be completely immobilized in the same 
situation.  Diesel-hybrid vehicles consume an average of 3.4 
liters per 100 kilometers, with only 90 grams of carbon 
dioxide emitted per kilometer, saving almost 30% more than 
traditional diesel engines.  Obstacles to adopting hybrid 
cars in Europe are the continuously rising prices of fuel, 
changing public opinion, and the fact that many consumers 
aren't ready to spend several thousands of euros to acquire 
a cleaner running car. 
 
¶7. Hummer sales contradict the French stereotype of 
themselves as low energy users:  According to findings by 
Capgemini, more than 50 percent of French consumers surveyed 
planned to buy/lease a used vehicle, while at least a 
quarter claimed that their primary vehicle was at least ten 
years old and would only consider purchasing another vehicle 
if its repair costs got too high.  Furthermore, French 
companies such as Renault are launching modest, bare 
essential vehicles, like the Logan, built in Romania by 
subsidiary Dacia, with a starting price of around $6,400. 
Yet, despite a competitive trend for thrifty automobiles, 
sales for the Hummer have been on the rise of late, 
according to Paul Chedid, a Hummer salesman in Paris. 
Despite the Hummer's enormous size, its price tag of as much 
as 200,000 euros, and its massive gasoline consumption in a 
country where gas costs at least $5 a gallon, Chedid expects 
to sell at least 500 Hummers this year.  What sells the 
Hummer is its distinctiveness and "wow factor."  The first 
European customers in the 1990s were celebrity figures and 
included French rock icon Johnny Hallyday and fashion 
designer Karl Lagerfield.  Nowadays, customers include 
sports stars, corporate executives, and those lured by 
extravagance and Americana.  Newer models will feature more 
economical diesel engines, which are popular in France. 
 
¶8. Who will succeed Jean Syrota at French energy regulator?: 
The tenure for the president of the Energy Regulatory 
Commission in France will end March 24.  There are at least 
half a dozen potential successors with Andre-Claude Lacoste 
leading as the favorite.  Lacoste is the current director of 
nuclear security and radioprotection, at the Nuclear Safety 
Authority (ASN), which is getting ready to transform itself 
into an independent administrative authority and 
redistribute its responsibilities.  Some have speculated 
that if Lacoste moves to CRE, he might be replaced at ASN by 
Syrota.  Syrota has an honorable record at the difficult 
task of setting up a regulatory body to enforce new 
competition rules as well as access to the electricity grid 
and gas pipeline network in the historically monopolistic 
electricity and natural gas markets.  The sector has been 
busily preparing itself for the daunting prospect of full 
competition in all market segments beginning in July 2007. 
The other top potential candidate to replace Syrota is 
Philippe de Ladoucette, president of the French Coal Board. 
He reportedly has the support of Finance Minister Breton, 
but Ladoucette's ties to the president of EDF, Pierre 
Gadonneix, is perceived to kill his chances of getting the 
CRE presidency. 
 
¶9. PSA and Renault adopt energy efficiency ratings: In 
January, French Ecology Minister Nelly Olin introduced an 
energy conservation rating system to encourage French 
consumers to buy cleaner, more efficient vehicles.  The 
system is also designed to inform consumers about CO2 
emissions, which contribute to the greenhouse effect.  These 
ratings, similar to the ratings on energy efficient 
household appliances, will be mandatory for all new vehicles 
sold as of May 10, 2006, although French automotive 
companies PSA and Renault have already begun applying these 
ratings on current car sales.  All French and foreign 
automobile companies support the energy efficiency ratings, 
which will also become mandatory for homes beginning July 1, 
2006, for all real estate sales (and for all rentals 
beginning July 1, 2007).  The GOF hopes to apply the rating 
to all products that consume energy.  Recalling the GOF's 
2004-2012 Climate Plan, where energy ratings were among the 
key topics, French Prime Minister Dominique de Villepin 
added that tax credits would be also offered and the 
reimbursable amount would be increased to encourage 
purchases of cleaner, more energy efficient products. 
 
¶10. Total reports strong performance:  Total's stock 
benefited from a 16% increase in profit during the fourth 
quarter of 2005 due to near record crude oil prices and 
outlasting competitors after suffering less damage after 
Hurricane Rita.  Though sales in the fourth quarter 
increased by 18%, production fell by 6.5% or approximately 
2.6 million barrels a day.  Fourth quarter earnings slowed 
as production decreased due to the hurricane damage along 
the U.S. Gulf Coast.  Total also recently announced its 
plans to sell its 24.5% share of Gaz de Strasbourg and its 
16% share of Gaz de Bordeaux gas distribution networks. 
Total's primary objective is to supply gas to small and 
medium sized companies and industries rather than 
residential customers in order to gain at least 15% share of 
the French gas market by 2010.  Furthermore, in May during 
the upcoming General Assembly, Total's administrative 
counsel will propose splitting each share of Total stock 
into four.  Their intention to put forward this proposal was 
recently confirmed by the president of Total, Thierry 
Desmarest.  He explained that if the shareholders adopt this 
proposition during the General Assembly, then a shareholder 
who held 10 shares would then hold 40 shares.  If approved, 
the share split would take effect on May 18. 
 
¶11. France and India hope to expand nuclear power 
cooperation (and sales):  During the weekend of February 18- 
19, French President Jacques Chirac, along with several 
French businessmen and government officials met with India's 
Prime Minister, Manmohan Singh in New Delhi.  The local 
media took Chirac's announcement of France's support for 
India's position for a place on the United Nations Security 
Council as an effort, at least in part, to emphasize his 
judgment that India is a responsible nuclear power.  France 
reaffirmed its September 2005 agreement to help New Delhi 
acquire civilian nuclear power technology.  France is eager 
to enter the nuclear power market in India, but a final 
agreement cannot be made until India clarifies its positions 
regarding the separation of civilian and military nuclear 
research and development as previously outlined. 
 
¶12. Franco-German-Benelux talk of common electricity market: 
France, Germany and the Benelux countries have begun talks 
to set up a single electricity market in a move towards a 
unified EU energy policy (see Paris 762).  So far, 
discussions have concentrated on the technical details of 
joining up national electricity grids.  Although currently 
limited to these five countries, this new "electricity club" 
is reportedly open to new members. 
Hofmann